Retailing in Britain: Traditional Retailers vs. Discounters

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"Foreignmultinationals were, by definition, late-corners into the already developed British high streets.Where these new entrantswere successful, theymust have held some strong advantages to oust the incumbents.As noted above, thesemay have been superior economies in the supply chain, such as in purchasing, or logistics, or othermanagement functions.Or theymay have developed superior merchandising skills elsewhere and so simply imported better advertising or display activities and so on to a receptive British audience.Or, following the classic account of themotives forEDI inmanufacturing, theymay have invested in dedicated distribution channels because of some combination of genuine productivity advantages over competitors, the importance of strong presence in the importantUKmarket, and of high transaction costs inhibiting either market entry or growth."¹³

By the 1990s, apart from the specialist foreign retailers, traditional British retailers had to encounter the domestic supermarkets¹⁴ which moved into non-food offerings. Asda,¹⁵ (a supermarket chain acquired byWal-Mart in 1999), was the first to expand aggressively into areas like stationery, videos and CDs and clothes designed by George Davis.¹⁶ The huge volumes and relatively lower range of supermarkets enabled them to undercut the price being offered by general retailers. A survey conducted by Goldman Sachs in April 2001 revealed that at Tesco, a basket of DIY (Do-it-yourself) prices of goods were 46%lower than the average DIY retail prices. At B&Q (a large DIY chain) prices for the same were 58%higher than average. The foray of supermarkets into the general retailing goods had intensified the competition. The supermarkets diversified fromgroceries into selling their own branded general household goods like shampoos, toothpastes, newspapers,magazines, books and everything from £30 DVD players to £4 denimjeans. To fend off the competition and to protect their ground specialised retailers improved their products. Boots for example, released its own range of 'natural' creams and soaps to counter the increased competition fromBodyShop (which sells cosmeticsmade fromnatural products). Supermarkets' foray into generalmerchandising transformed the British shopping habits. In 1999 only about 8%of Asda's customers bought clothes, but by 2004 one third of them purchased apparels.At Tesco, by 2004, revenues from the nonfood merchandising had doubled in ten years. Supermarkets, apart from expanding themselves, made sure that their customer service was superior, by installingmodern technologies to enable their backrooms to know and respond quickly to the needs of customers at the front-end. Another important outcome of the timely information sharing was lowering of average inventory,¹⁷ which in turn decreased working capital requirements leading to lower costs.

Observers analysed that the steady flow of customers was a built in advantage for the supermarkets, which was exploited to lure the grocery shoppers to buy household articles by offering themat lowcosts, as The Economist observed, "Stationery is cheaper in supermarkets. Newspapers and magazines, Smith’s traditional staple, are the same price in supermarkets; but why go toWH Smith when you’re in Tesco for your groceries anyway?"¹⁸ Taylor Nelson Sofres (TNS), amarket-information consultancy, estimated that by 2004,Asda was selling non-food goods (excluding petrol) worth over £2 billion a year, against £8.5 billion¹⁹ of food and drink. The consultancy also estimated that by 2004 the big three Tesco, Asda and J. Sainsbury were selling 5%as much as the rest of Britain's retailers put together in non-foods items. They leveraged on their buying power to keep prices down. "Price cuts?Who needs themto beatBoots?TenGillette Blue-II razors cost £2.45 atSainsbury, £2.49 (in a pack of 20) atTesco, £2.69 (currently cut to £1.99) at Superdrug—and £3.52 at Boots."²⁰

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11]Godley, Andrew "Foreign multinationals and innovation in British retailing, 1850-1962.(Industry Overview)", www.highbeam.com, (Business History), January 1st 2003
12]"By George", www.economist.com, September 23rd 2004
13]"Foreign multinationals and innovation in British retailing, 1850-1962.(Industry Overview)", op. cit.
14]A large self-service retail store selling primarily food and grocery
15]By 2004 Asda was the second largest super market chain, on the basis of revenues, after Tesco. Standing third was J Sainsbury
16]Renowned fashion designer and the founder of apparel retailing chain Next
17]In Britain, the big supermarket firms cut the average size of their inventory from 5.1 weeks' worth of stock in 1980 to 1.5 weeks in 1996. They achieved this by providing sales data from their tills directly to their suppliers, so that timely deliveries could be made
18]"The grandees fall behind", www.economist.com, January 8th 2004
19]Ibid
20]Ibid